Unprecedented achievement this year as robust auto sector is back on the road
This year, Thailand will produce more than 2 million vehicles for the first time in history.
It has taken more than five decades for the industry to come this far, and it speaks volumes of the success of all sectors that have been involved, whether government or private.
In 2011 two major disasters were responsible for rocking Thailand’s automobile industry – the East Japan earthquake and the great Thai flood. Both the tsumani in Japan and the mega flood in Thailand caused a disruption in the supply of parts that brought production lines to a halt. It also shook Thailand’s position as a regional production hub, as production in other countries was also affected.
The earthquake and tsunami in March 2011 heavily damaged many important auto parts production facilities in Japan, causing parts shortages.
Thailand’s auto production drove off a cliff and shifts were halved due to a shortage of parts from Japan, especially important electronic components. Eventually however, our auto industry recovered after sourcing parts from other facilities outside Japan. And it took just 2-3 months before normal production was resumed.
But several months later, the industry smacked head-on into a barrier, taking another crushing blow as heavy rainfall caused huge floods in many provinces. The massive mass of water gushed down from the north to the central region, submerging and swamping at least seven major industrial estates and auto parts factories for months.
The auto assembly plants were forced to halt production due to a shortage of parts, and the damage was estimated to be much higher than during the Japanese tsunami.
According to reports, the mega Thai flood caused a domino effect as the kingdom was a major producer of 1-tonne pickup trucks and components. It was so severe that in October 2011 Toyota announced it would cut production at several plants in Japan and North America, while other auto-makers also had to cut production at many of their plants due to the flood.
In October 2011, auto production in Thailand dropped to 49,439 vehicles and November production dropped even further to a mere 23,695.
In total, it is estimated Thailand lost production of almost 400,000 vehicles due to the massive flood. Total production in 2011 ended at 1,457,795 vehicles, below the 1.8-million target.
With assembly plants coming to a halt, the whole industry teamed up to overcome the problem and resume normal production. Auto-makers started to assist parts-makers in several ways in order to bring back this important link in the production chain.
The government also assisted parts-makers in many ways, including relief from tax measures. It waived import duty on new machinery for replacing flood-damaged factories, waived import duty on CBU vehicles for assembly plants damaged by the flood, and waived import duty on auto parts for manufacturers damaged by the flood.
Apart from quickly resolving production issues, the private sector also launched strong marketing strategies and introduced a large number of new vehicles. The government, on the other hand, launched assistance measures and put more focus on the First Car Buyer Programme. Auto-makers responded very well to the measures and helped drive the whole industry to new heights.
According to the First Car scheme, the excise duty for vehicles that qualify (not more than Bt100,000) will be returned to the buyer after one year of purchase. Orders must be placed and applications submitted no later than December 31, 2012. There is no deadline for vehicle delivery.
Vehicles that qualify for the scheme must be locally assembled, have engine displacement of not more than 1,500cc (not limited for pickup trucks) and priced at not more than Bt1 million. Ownership of the vehicle is not allowed to be changed during the first five years.
The production sector, meanwhile, worked hard in resuming production, and was able to kick-start the industry once again in early 2012, achieving normal production in March.
All these positive factors have helped the auto industry to spin around and take off once again down the road.
Auto manufacturers have not been able to deliver as many as 100,000 vehicles ordered since late 2011 due to the flood, and the First Car scheme has earned carmakers even more orders, with the industry growing by more than 70 per cent compared to the previous year.
Apart for the increased demand, the large number of new vehicles, especially in the sub-compact, small and eco-car segments, as well as production increases, have aided the industry in achieving a new production record of 2 million vehicles. This is unprecedented.
With the strong recovery, the government and private sector had predicted that 2012 would be a golden year for the auto industry. Domestic sales had been forecasted to reach 1.2 million vehicles, with a production of 2.2 million – both figures being the highest in history. After eight months, auto-makers started to raise their annual forecast to 1.3 million vehicles, and it was later raised to 1.4 million.
This great recovery of the auto industry requires not only high market demand. The strength of our automobile industry built up in the last 50 years will indeed help it tackle every situation that arises, and soon place Thailand in the ranks of the world’s top 10 auto producers.
Eye on the 3-million figure
Thailand’s next target is to produce 3 million vehicles in 2017, says Suparat Sirisuwannangkura, chairman of the Automotive Industry Group of the Federation of Thai Industries.
“In the past, more than Bt100 billion was spent on research and development for automobiles and motorcycles. All this has helped strengthened the Thai auto industry more than those in other countries, but in order to be on track, Thailand needs higher technology and cooperation from every sector to develop our personnel and others involved,” Suparat says.
And what level of R&D capability does Thailand have?
“Recently, companies like Toyota, Honda and Isuzu, as well as motorcycle companies and parts-makers like Denso, and even Thai companies like the Summit Group and Thai Summit, ushered R&D innovations into Thailand,” says Suparat. “For example, Toyota is now able to develop a minor-change pickup model and its derivatives like the Fortuner in Thailand. We have testing and development in the country, allowing us to respond to market requirements quickly and more easily. Others are also reaching the same capability in developing minor-change models here, as well as developing new models that can run on alternative energy including biodiesel and gasohol. This is a great opportunity for Thai engineers to absorb the knowledge and technology and get closer to developing a new model by themselves in the next five years.
“After establishing continuity for R&D investment, the next challenge is that if our parts-makers can develop themselves and move up a step, there is high possibility that Thailand will up its status as a global producer and exporter of automobiles. Being an important strategic production base will help Thailand serve as a centre for auto parts production as well,” Suparat points out.
“Our auto industry is proof of the capability of Thai people. If everything goes as we think it will, Thailand will become a very important automobile production base in the world and be among the globe’s top 10 auto-makers in the very near future.”